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August 10, 2007

Comments

Ashok

You may know better, but I also believe loans were made to people using ARM's just to qualify based on the assumption that if rates went up, housing prices would stay up and the borrower could walk away with a small profit. These were people who based on doucmented income (W2's etc) would qualify for $x on a 30 year loan but bought a house which was much more than $x, as ARM rates were lower. This greed caught up to them and they have loans they cannot service and houses worth less than they bought them.

Dick Lepre

Regarding ARMs:

Most all investors are now requiring that ARMs be underwritten at the fully indexed rate (present value of the index plus the margin). You are correct in pointing out that underwriting at start rate was another example of shortsighted lending.

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